New rules to improve shareholder engagement and corporate governance reporting

Belgium 9 Apr 2014

It is essential for Europe to create a modern and efficient company law and governance framework. ACCA welcomes cost-efficient company law solutions that will contribute to competitiveness and long-term performance. However, we believe that different economic environments in Europe must be acknowledged and companies have to be provided with flexibility by allowing them to manage their corporate governance according to their specificities in each member state

—John Davies, head of technical,ACCA

ACCA (the Association of Chartered Certified Accountants) welcomes the company law and corporate governance package, adopted today by the European Commission

Following the Communication on the long-term financing of the European economy, published on 27 March 2014, today’s package includes the proposal to revise the Shareholder Rights Directive, the proposal for a Directive on single-member companies and the Recommendation on the quality of corporate governance reporting (“comply or explain”).

John Davies, Head of Technical at ACCA says: 'The proposal for the revision of the Shareholders Rights Directive is a step forward towards increasing transparency as regards shareholder identification and shareholder oversight on directors’ remuneration and related party transactions. A strong call has been made to ensure shareholders gain timely access to information.

'The proposed ‘say on pay’ will give shareholders a new right to influence and approve their company’s remuneration policy, which will have to explain how the company believes pay practices will contribute to its long-term and sustainable development. This amounts to a practical commitment to the encouragement of a longer-term business focus, and is a welcome reform in that context. ACCA believes that it is important to encourage shareholder commitment that is in line with long-term company interests and ensures better operating conditions for listed companies,' explains John Davies.

The recommendation on corporate governance calls for more detailed explanations to be given by companies that depart from the provisions of a relevant corporate governance code, and for member state governments to monitor compliance.

'This initiative does not restrict the freedom for companies to choose not to comply with a standard provision of a non-mandatory corporate governance code, but instead calls on them to be forthcoming about why they decide to do so. This will allow shareholders to make their own judgments about whether a company’s action merits support or not. It will be vital though that appropriate monitoring takes place to ensure that companies are responding to the new recommendation.'

The proposal for new legislation on the single member company aims to make it easier for very small businesses to set up and operate, especially in respect of cross-border trading. 'This will bring about a standardisation of company law requirements throughout the EU so that entrepreneurs and parent companies can set up operations in different countries in accordance with similar rules. This in itself will be good for the promotion of business activity. However it will be important to ensure that adequate safeguards are available to protect the interests of who do business with these new companies,' says John Davies.

'It is essential for Europe to create a modern and efficient company law and governance framework. ACCA welcomes cost-efficient company law solutions that will contribute to competitiveness and long-term performance. However, we believe that different economic environments in Europe must be acknowledged and companies have to be provided with flexibility by allowing them to manage their corporate governance according to their specificities in each member state,' concludes John Davies.